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Rosen: Parsing PERA's private pension plot

By Mike Rosen

Posted:
06/18/2014 05:33:56 PM MDT

Updated:
06/18/2014 05:34:02 PM MDT

Walker Stapleton (Denver Post file)

Coloradans dodged a bullet when House Bill 1377 was killed in the final days of the legislative session last month thanks largely to the efforts of State Treasurer Walker Stapleton, a lonely defender of fiscal sanity. The bill would have empowered the Democrat-controlled legislature to create a "Colorado retirement security task force," whose mission would be to craft a state-run retirement plan for private-sector Colorado employees.

Bad public policy often starts with a "task force" built on a false premise. In this case, it is that the state has any business or competency taking on such a responsibility. Colorado's PERA defined-benefit pension plan for public-sector workers has an officially reported $26 billion unfunded liability, which is actually far worse if you scale down its unrealistically optimistic assumption of future returns on its investment portfolio.

The annual contribution of Colorado taxpayers to PERA greatly exceeds that of the government workers on the PERA gravy train. Moreover, PERA's attorneys have flatly declared that, under the law, private-sector taxpayers must make up for any shortfalls in PERA's trust fund and honor the exorbitant promises made to PERA members.

And now, Democrats who run the state legislature want to add to our fiscal problems the mismanagement of a private sector pension plan? Stapleton called this insanity — and he's right. Under HB 1377, among the options laid out for the task force was the holding of contributions in a trust invested in a diversified portfolio of assets, and that retirement benefits would be "disbursed as guaranteed, lifetime, monthly amounts."

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That sounds like a defined-benefit pension plan, the likes of which are driving states, cities and private businesses (think of GM and Chrysler) bankrupt across the country. That's why the private sector has phased out these pension funds in favor of defined contribution plans like 401(k)s, in recognition of the fact that fickle economic realities make guarantees of future benefits unsustainable.

Curiously, HB 1377 also stated that the task force shall not consider guarantees that cause the state or private-sector employers to incur any liability or financial obligations for contributions or disbursements to plan participants. Huh? That sounds like a clear contradiction. If not the state, who would back up the aforementioned "guarantees"? An insurance company offering a guaranteed annuity? Suppose an economic crisis drove it bankrupt? (Think AIG.) Who backs it up then?

The task force, incidentally, would include legislators and their appointees, many of whom are PERA members. After Stapleton questioned the bill and asked to be included on the task force, he was personally attacked on the floor of the Colorado House by Speaker Mark Ferrandino, the bill's sponsor.

There's a devious political dimension to this as well. Lobbying for this bill is the Colorado Coalition for Retirement Security/Secure PERA. It's a smorgasbord of teachers unions and other government employee unions, PERA members all. Their motive is to preserve their guaranteed pension, a fiscal dinosaur, by cloning a private sector version of it. That way it won't stand out like a black widow spider on an angel food cake. HB 1377 also instructs the task force to consider "pooling retirement funds." Does that mean with the private-sector fund? That would add private-sector workers to the defend-PERA-at-all-costs political coalition and would also dupe private-sector workers into covering PERA's unfunded liabilities through an intergenerational transfer of income, making it a Ponzi scheme like Social Security.

HB 1377 will likely return. It's tied to a nationwide incestuous movement backed by the National Institute of Retirement, whose board includes Gregory Smith, current head of Colorado's PERA, and Meredith Williams, his PERA predecessor.

Good grief! Isn't that convenient?

Freelance columnist Mike Rosen's radio show airs weekdays from 1 to 3 p.m. on 850-KOA.

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